How to Write a Statement Disagreeing with CP2000 Notice from IRS

You're definitely on the right track with your response. This is a common issue with returned excess contributions to IRAs. The IRS computer system often generates these notices because it simply matches the 1099-R against what you reported without understanding the nuance of returned contributions. Make sure your response includes specific references to IRS Publication 590-B which covers this exact scenario of returned contributions being treated as if never contributed. Include copies of your account statements showing the original contributions and the full withdrawal. Also attach a copy of your original return showing you properly reported the earnings on line 4b. The key phrase you want to emphasize is "returned contributions treated as if never contributed" - this is IRS terminology that helps clarify why the contributions portion isn't taxable. Also reference IRC Section 408(d)(4) which provides the statutory basis for this treatment. Don't forget to include documentation of the timing - proving the withdrawal occurred before the tax filing deadline is crucial to qualifying for this treatment.

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I dealt with almost this exact situation last year. One important thing to add to your response letter: be VERY clear about the timeline. The IRS is strict about the "before the tax filing deadline" requirement for returned contributions. Make sure you explicitly state: 1. When you made the original contributions 2. When you discovered they were ineligible 3. The exact date you withdrew the funds 4. The filing deadline that applied to you that year (including any extensions) In my case, I included a calendar with these dates highlighted and it seemed to help. Also, label all your supporting documents clearly (e.g., "Exhibit A: IRA Contribution Statement," "Exhibit B: Complete Distribution Statement") and reference them specifically in your letter. Makes it much easier for the IRS agent reviewing your case.

Has anyone else noticed that the IRS seems to be sending out way more CP2000 notices the last few years? I've gotten two in the past three years for totally different issues, and both times they were wrong. I'm wondering if their automated matching system is just flagging more returns without human review first.